The One Inevitable Trend That Will Lift The US Housing Market

One major trend to emerge from the housing bust was the decline in US household formation.

The US homeownership rate fell to 65.1% in 2013, the lowest since 1995, and declining for the ninth straight year.

On the back of poor employment opportunities, young adults were forced to move back in with their parents. This along with a slowdown in immigration hurt household formation.

"Indeed, some 2.1 million more adults in their 20s and 300,000 more adults in their 30s lived with their parents in 2013 than if the shares living at home had remained at 2007 levels," according to a new paper from the Joint Center for Housing Studies of Harvard University.

While many with jobs are still living at home, there is a silver lining, there is one inevitable trend that will help the housing market: 20-29 year olds will move out. From the paper (emphasis ours):

"The fact that these delayed moves have held back household growth in recent years has fed hopes that the housing market recovery would accelerate once employment growth revived and younger adults were able to get jobs. This rebound has yet to occur, even though many living at home are now employed.

"Historically, however, the share of adults living with their parents drops sharply after age 24 and continues to fall to 6 percent by the mid- to late 30s. Regardless of the economic setbacks they may have experienced, today’s 20–29 year olds are still likely to follow the same pattern. Assuming current headship rates hold, the number of households in their 30s should therefore increase by 2.7 million over the next decade and provide a strong lift to the rental and starter home markets."

Harvard Joint Ccenter For Housing Studies

Earlier this month we pointed out that 55.3% of 18-24-year-olds lived at home last year, compared with 56.2% in 2012.

"In particular, data from the Current Population Survey, which includes extensive information on both the number and characteristics of US households over time, suggest that more young adults are now finding it feasible to move out," Michael Gapen at Barclays said in a note at the time.

So, it might not be a change we see overnight, but housing is set to get a nice boost in the coming years.